Chapter 23: Coase’s empirical studies: the case of the lighthouse
While apparently very diverse, the great majority of Ronald Coase’s works have in common that they rest upon empirical case studies: the hog cycle and the firm in the 1930s, public utilities and broadcasting institutions from the 1940s to the 1970s, the integration of Fisher Body by General Motors, and the capitalist transformation of China in the first two decades of the twenty-first century. Coase often insisted on the necessity of extensive empirical work in economics, as for example on the occasion of his ‘Nobel lecture’, in which he said that ‘what we need is more empirical work’ (Coase 1992: 718). This insistence can be linked to the influence of Alfred Marshall, and of his professor and then colleague at the London School of Economics, Arnold Plant. In opposition to mainstream economics, which he considered too ‘abstract’, Coase aimed at building economic theory out of empirical studies that must, first, found realistic assumptions – a call that dates back to ‘The nature of the firm’ (Coase 1937) and was later made explicit in opposition to Friedman’s manifesto (Coase 1982). Empirical studies must then be used in the design of policies, which must also, in a sense, be ‘realistic’. In Coase’s view, realistic policies should take into account that a policy is an institutional change, and should be designed through an analysis of the specific initial circumstances and a comparison of alternative actual institutional arrangements.
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